xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014.

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 001-34877

CoreSite Realty Corporation

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction

of incorporation or organization)

27-1925611

(I.R.S. Employer

Identification No.)

1001 17th Street, Suite 500 Denver, CO

(Address of principal executive offices)

80202

(Zip Code)

(866) 777-2673

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of common stock outstanding at April 23, 2014 was 21,626,100.

CoreSite Realty Corporation (the Company, we, or our) was organized in the state of Maryland on February 17, 2010 and is a fully-integrated, self-administered, and self-managed real estate investment trust (REIT). Through our controlling interest in CoreSite, L.P. (our Operating Partnership), we are engaged in the business of owning, acquiring, constructing and managing data centers. As of March 31, 2014, the Company owns a 45.3% common interest in our Operating Partnership and affiliates of The Carlyle Group and others own a 54.7% interest in our Operating Partnership. See additional discussion in Note 8.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in compliance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the expected results for the year ending December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. Intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates, including those related to assessing the carrying values of our real estate properties, goodwill, accrued liabilities and performance-based equity compensation plans. We base our estimates on historical experience, current market conditions, and various other assumptions that we believe to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could vary under different assumptions or conditions.

Adjustments and Reclassifications

Office, light industrial and other revenue, included within the consolidated statements of operations for the three months ended March 31, 2013, has been reclassified to conform to the 2014 financial statement presentation. In addition, certain other immaterial amounts included in the condensed consolidated financial statements for 2013 have been reclassified to conform to the 2014 financial statement presentation.

Investments in Real Estate

Real estate investments are carried at cost less accumulated depreciation and amortization. The cost of real estate includes the purchase price of property and leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Significant renovations and betterments that extend the economic useful lives of assets are capitalized. During land development and construction periods, we capitalize construction costs, legal fees, financing costs, real estate taxes and insurance and internal costs of personnel performing development, if such costs are incremental and identifiable to a specific development project. Capitalization begins upon commencement of development efforts and ceases when the property is ready for its intended use and held available for occupancy. Interest is capitalized during the period of development based upon applying the weighted-average borrowing rate to the actual development costs expended. Capitalized interest costs were $1.2 million and $0.9 million for the three months ended March 31, 2014, and 2013, respectively.

Depreciation and amortization are calculated using the straight-line method over the following useful lives of the assets:

Buildings

27 to 40 years

Building improvements

1 to 10 years

Leasehold improvements

The shorter of the lease term or useful life of the asset

Depreciation expense was $15.1 million and $11.9 million for the three months ended March 31, 2014, and 2013, respectively.

Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and building improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and the value of customer relationships.

The fair value of the land and building of an acquired property is determined by valuing the property as if it were vacant, and the as-if-vacant fair value is then allocated to land and building based on managements determination of the fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.

The fair value of intangibles related to in-place leases includes the value of lease intangibles for above-market and below-market leases, lease origination costs, and customer relationships, determined on a lease-by-lease basis. Above-market and below-market leases are valued based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease and, for below-market leases, over a period equal to the initial term plus any below-market fixed rate renewal periods. Lease origination costs include estimates of costs avoided associated with leasing the property, including tenant allowances and improvements and leasing commissions. Customer relationship intangibles relate to the additional revenue opportunities expected to be generated through interconnection services and utility services to be provided to the in-place lease tenants.

The capitalized values for above and below-market lease intangibles, lease origination costs, and customer relationships are amortized over the term of the underlying leases or the expected customer relationship. Amortization related to above-market and below-market leases where the Company is the lessor is recorded as either a reduction of or an increase to rental income, amortization related to above-market and below-market leases where the Company is the lessee is recorded as either a reduction of or an increase to rent expense and amortization for lease origination costs and customer relationships are recorded as amortization expense. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off. The carrying value of intangible assets is reviewed for impairment in connection with its respective asset group whenever events or changes in circumstances indicate that the asset group may not be recoverable. An impairment loss is recognized if the carrying amount of the asset group is not recoverable and its carrying amount exceeds its estimated fair value. No impairment loss related to these intangible assets was recognized for the three months ended March 31, 2014, and 2013.

The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. As of March 31, 2014, and December 31, 2013, we had approximately $41.2 million of goodwill at each date. The Companys goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. No impairment loss was recognized for the three months ended March 31, 2014, and 2013.

Cash and Cash Equivalents

Cash and cash equivalents include all non-restricted cash held in financial institutions and other non-restricted highly liquid short-term investments with original maturities at acquisition of three months or less.

Deferred Costs

Deferred leasing costs include commissions paid to third party leasing agents and internal sales commissions paid to employees for successful execution of lease agreements. These commissions and other direct and incremental costs incurred to obtain new customer leases are capitalized and amortized over the terms of the related leases using the straight-line method. If a lease terminates prior to the expiration of its initial term, any unamortized deferred costs related to the lease are written off to amortization expense.

Deferred financing costs include costs incurred in connection with obtaining debt and extending existing debt. These financing costs are capitalized and amortized on a straight-line basis, which approximates the effective-interest method, over the term of the loan and are included as a component of interest expense.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the assets. The estimation of expected future net cash flows is inherently uncertain and relies, to a considerable extent, on assumptions regarding current and future economics and market conditions and the availability of capital. If, in future periods, there are changes in the estimates or assumptions incorporated into the impairment review analysis, the changes could result in an adjustment to the carrying amount of the long-lived assets. To the extent that impairment has occurred, the excess of the carrying amount of long-lived assets over its estimated fair value would be recognized as an impairment loss charged to net income. For the three months ended March 31, 2014, and 2013, no real estate impairment was recognized.

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the condensed consolidated balance sheets. For those derivative instruments that are designated, and qualify, as hedging instruments, we record the effective portion of the gain or loss on the hedge instruments as a component of accumulated other comprehensive income. Any ineffective portion of a derivatives change in fair value is immediately recognized within net income. For derivatives that do not meet the criteria for hedge accounting, changes in fair value are immediately recognized within net income. See additional discussion in Note 6.

Internal-Use Software

We recognize internal-use software development costs based on the development stage of the project and nature of the cost. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred to develop internal-use software during the application development stage are capitalized. Internal and external training costs and maintenance costs during the post-implementation-operation stage are expensed as incurred. Completed projects are placed into service and amortized over the estimated useful life of the software.

During the three months ended March 31, 2014, we recognized a $0.9 million impairment charge within general and administrative expense on the condensed consolidated statement of operations as a result of internal-use software previously under development that was discontinued during the period and will no longer be placed into service.

Revenue Recognition

All customer leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the non-cancellable term of the agreements. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rent receivable. If a lease terminates prior to its stated expiration, the deferred rent receivable relating to that lease is written off as a reduction of rental revenue.

When arrangements include multiple elements, the revenue associated with separate elements is allocated based on the relative fair values of those elements. The revenue associated with each element is then recognized as earned. Interconnection services and additional space services are considered as separate earnings processes that are provided and completed on a month-to-month basis and revenue is recognized in the period that services are performed. Customer set-up charges and utility installation fees are initially deferred and recognized over the term of the arrangement as revenue.

Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable costs are recognized as revenue in the period that the related expenses are incurred.

Above-market and below-market lease intangibles that were acquired are amortized on a straight-line basis as decreases and increases, respectively, to rental revenue over the remaining non-cancellable term of the underlying leases. For the three months ended March 31, 2014, and 2013, the net effect of amortization of acquired above-market and below-market leases resulted in an increase to rental revenue of $0.1 million and $0.2 million, respectively.

A provision for uncollectible accounts is recorded if a receivable balance relating to contractual rent, rent recorded on a straight-line basis, or tenant reimbursements is considered by management to be uncollectible. At March 31, 2014, and December 31, 2013, the allowance for doubtful accounts totaled $0.3 million and $0.2 million, respectively.

Share-Based Compensation

We account for share-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted by us is calculated based on Black-Scholes option-pricing model. The fair value of restricted share-based and Operating Partnership unit compensation is based on the market value of our common stock on the date of the grant. The fair value of performance share awards, which have a market condition, is based on a Monte Carlo simulation. The fair value for all share based-compensation is amortized on a straight-line basis over the vesting period.

We record accruals for estimated retirement and environmental remediation obligations. The obligations relate primarily to the removal of asbestos and contaminated soil during development of properties as well as the estimated equipment removal costs upon termination of a certain lease where we are the lessee. At March 31, 2014, and December 31, 2013, the amount included in other liabilities on the condensed consolidated balance sheets was approximately $2.3 million and $2.2 million, respectively.

Income Taxes

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code), commencing with our taxable year ended December 31, 2010. To qualify as a REIT, we are required to distribute at least 90% of our taxable income to our stockholders and meet various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we qualify for taxation as a REIT, we are generally not subject to corporate level federal income tax on the earnings distributed currently to our stockholders. If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax.

To maintain REIT status, we must distribute a minimum of 90% of our taxable income. However, it is our policy and intent, subject to change, to distribute 100% of our taxable income and therefore no provision is required in the accompanying financial statements for federal income taxes with regards to activities of the REIT and its subsidiary pass-through entities. The allocable share of income is included in the income tax returns of the members. The Company is subject to the statutory requirements of the locations in which it conducts business. State and local income taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of respective tax laws.

We have elected to treat certain subsidiaries as taxable REIT subsidiaries (TRS). Certain activities that we undertake must be conducted by a TRS, such as services for our tenants that could be considered otherwise impermissible for us to perform and holding assets that we cannot hold directly. A TRS is subject to corporate level federal and state income taxes.

Deferred income taxes are recognized in certain taxable entities. Deferred income tax is generally a function of the periods temporary differences (items that are treated differently for tax purposes than for financial reporting purposes), the utilization of tax net operating losses generated in prior years that previously had been recognized as deferred income tax assets and the reversal of any previously recorded deferred income tax liabilities. A valuation allowance for deferred income tax assets is provided if we believe all or some portion of the deferred income tax asset may more likely than not be not realized. Any increase or decrease in the valuation allowance resulting from a change in circumstances that causes a change in the estimated realizability of the related deferred income tax asset is included in deferred tax expense. As of March 31, 2014, and December 31, 2013, the deferred income taxes were not material.

We currently have no liabilities for uncertain tax positions. The earliest tax year for which we are subject to examination is 2010. Prior to their contribution to our Operating Partnership, our subsidiaries were treated as pass-through entities for tax purposes and the earliest year subject to examination of our subsidiaries is 2010.

Concentration of Credit Risks

Our cash and cash equivalents are maintained in various financial institutions, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk in this area. We have no off-balance sheet concentrations of credit risk, such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements.

Segment Information

We manage our business as one reportable segment consisting of investments in data centers located in the United States. Although we provide services in several markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics amongst all markets, including the nature of the services provided and the type of customers purchasing these services.

A summary of outstanding indebtedness as of March 31, 2014, and December 31, 2013, is as follows (in thousands):

Maturity

March 31,

December 31,

Interest Rate

Date

2014

2013

Revolving credit facility

2.15% and 2.17% at March 31, 2014, and December 31, 2013, respectively

January 3, 2017

$

160,000

$

174,250

Senior unsecured term loan

3.23% at March 31, 2014

January 31, 2019

100,000



SV1 - Mortgage loan

Repaid on January 31, 2014, and 3.67% at December 31, 2013

N/A



58,250

Total principal outstanding

$

260,000

$

232,500

Revolving Credit Facility

On January 3, 2013, our Operating Partnership and certain subsidiary co-borrowers entered into a second amended and restated senior unsecured revolving credit facility (the Credit Agreement) with a group of lenders for which KeyBank National Association acts as the administrative agent. The Credit Agreement maturity date is January 3, 2017, with a one-time extension option, which, if exercised, would extend the maturity date to January 3, 2018. The exercise of the extension option is subject to the payment of an extension fee equal to 25 basis points of the total commitment under the Credit Agreement at initial maturity and certain other customary conditions. The Credit Agreement contains an accordion feature, which allows our Operating Partnership to increase the total commitment from $405 million to $500 million, under specified circumstances.

The total amount available for borrowings under the Credit Agreement is subject to the lesser of the facility amount or the availability calculated based on our unencumbered asset pool. As of March 31, 2014, the borrowing capacity is $405 million. As of March 31, 2014, $160 million was borrowed and outstanding and $236.6 million was available for us to borrow under the Credit Agreement.

Our ability to borrow under the Credit Agreement is subject to ongoing compliance with a number of financial covenants and other customary restrictive covenants, including, among others:

·a maximum leverage ratio (defined as total consolidated indebtedness to total gross asset value) of 60%. As of March 31, 2014, our leverage ratio was 15.6%;

·a maximum secured debt ratio (defined as total consolidated secured debt to total gross asset value) of 40%. As of March 31, 2014, our secured debt ratio was 0%;

·a minimum fixed charge coverage ratio (defined as adjusted consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.75 to 1.00. As of March 31, 2014, our fixed charge coverage ratio was 7.80 to 1.00; and

As of March 31, 2014, we were in compliance with the covenants under our Credit Agreement.

Senior Unsecured Term Loan

On January 31, 2014, our Operating Partnership and certain subsidiaries entered into a $100 million senior unsecured term loan. The senior unsecured term loan has a five-year term and contains an accordion feature, which allows our Operating Partnership to increase the total commitments by $100 million, to $200 million, under specified circumstances. The senior unsecured term loan ranks pari passu with our Credit Agreement and contains the same financial covenants and other customary restrictive covenants. The borrowings bear interest at a rate per annum equal to (i) LIBOR plus 175 basis points to 265 basis points, or (ii) a base rate plus 75 basis points to 165 points, each depending on our Operating Partnerships leverage ratio. As of March 31, 2014, we were in compliance with the covenants under our senior unsecured term loan.

On February 3, 2014, we entered into a $100 million interest rate swap agreement to hedge one-month LIBOR variable rate debt, which includes the senior unsecured term loan and, if the term loan is repaid prior to maturity, the revolving credit facility. The interest rate swap has a five-year term and at our current leverage ratio, effectively fixes the senior unsecured term loan interest rate at 3.23%. See additional discussion in Note 6.

On January 31, 2014, we paid off the SV1 Mortgage loan in its entirety using the proceeds from the senior unsecured term loan.

The following table summarizes the amount of our outstanding debt when such debt currently becomes due (in thousands):

Year Ending December 31,

Remainder of 2014

$



2015



2016



2017

160,000

2018



2019

100,000

Total

$

260,000

6. Derivatives and Hedging Activities

On February 3, 2014, we entered into a $100 million interest rate swap agreement to protect against adverse fluctuations in interest rates by reducing our exposure to variability in cash flows relating to interest payments on $100 million of one-month LIBOR variable rate debt. The $100 million interest rate swap currently hedges the senior unsecured term loan and, if the term loan is repaid prior to maturity, could hedge one-month LIBOR variable rate debt under the revolving credit facility. The interest rate swap was designated for hedge accounting. This is our only derivative outstanding as of March 31, 2014, and there were none outstanding as of December 31, 2013.

Risk Management Objective of Using Derivatives

We are exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or expected cash payments principally related to the Companys investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Companys objectives in using interest rate derivatives are to reduce variability in interest expense and to manage its exposure to adverse interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income on the condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The amount recorded in accumulated other comprehensive income is $0.6 million for the period ending March 31, 2014. Such derivatives are used to hedge the variable cash flows associated with existing variable-rate debt. The amount reclassified to interest expense on the condensed consolidated statements of operations was $0.1 million and none for the three months ended March 31, 2014, and 2013, respectively. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2014, and 2013, the Company did not record any amount in earnings related to derivatives due to hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate debt. During the subsequent 12 months, the Company estimates that $1.3 million will be reclassified as an increase to interest expense.

Derivatives are recorded at fair value in our condensed consolidated balance sheets in other assets and other liabilities, as applicable. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure. The Company had $0.6 million recognized in other assets in our condensed consolidated balance sheet at March 31, 2014.

7. Stockholders Equity

We have declared the following dividends per share on our Series A Cumulative Preferred Stock and common shares during the three months ended March 31, 2014:

Declaration Date

Record Date

Payment Date

Preferred Stock (1)

Common Shares

March 6, 2014

March 31, 2014

April 15, 2014

$

0.4531

$

0.35

(1) Dividend covers the period from January 15, 2014, to April 14, 2014.

8. Noncontrolling Interests  Operating Partnership

Noncontrolling interests represent the limited partnership interests in the Operating Partnership held by individuals and entities other than CoreSite Realty Corporation. Since September 28, 2011, the current holders of Common Operating Partnership units have been eligible to have the Common Operating Partnership units redeemed for common stock on a one-for-one basis or cash, at our option. Preferred Operating Partnership units rank senior to the Common Operating Partnership units held by the Company and noncontrolling interests.

The following table shows the ownership interest in the Operating Partnership as of March 31, 2014, and December 31, 2013:

March 31, 2014

December 31, 2013

Number of Units

Percentage of Total

Number of Units

Percentage of Total

The Company

21,047,398

45.3

%

20,896,685

45.2

%

Noncontrolling interests consist of:

Common units held by third parties

25,275,390

54.5

%

25,275,390

54.6

%

Incentive units held by employees

85,457

0.2

%

85,457

0.2

%

Total

46,408,245

100.0

%

46,257,532

100.0

%

For each share of common stock issued by the Company, the Operating Partnership issues an equivalent Common Operating Partnership unit to the Company. During the three months ended March 31, 2014, the Company issued 150,713 shares of common stock related to employee compensation arrangements and therefore an equivalent number of Common Operating Partnership units were issued to the Company by the Operating Partnership.

Holders of Common Operating Partnership units of record as of March 31, 2014, received quarterly distributions of $0.35 per unit payable in correlation with declared dividends on common shares.

The redemption value of the noncontrolling interests at March 31, 2014, was $786.2 million based on the closing price of the Companys stock of $31.00 on that date.

9. Equity Incentive Plan

In connection with our IPO, the Companys Board of Directors adopted the 2010 Equity Incentive Plan (as amended, the 2010 Plan). The 2010 Plan is administered by the Board of Directors, or the plan administrator. Awards issuable under the 2010 Plan include common stock, stock options, restricted stock, stock appreciation rights, dividend equivalents and other incentive awards. We have reserved a total of 6,000,000 shares of our common stock for issuance pursuant to the 2010 Plan, which may be adjusted for changes in our capitalization and certain corporate transactions. To the extent that an award expires, terminates or lapses, or an award is settled in cash without the delivery of shares of common stock to the participant, then any unexercised shares subject to the award will be available for future grant or sale under the 2010 Plan. Shares of restricted stock which are forfeited or repurchased by us pursuant to the 2010 Plan may again be optioned, granted or awarded under the 2010 Plan. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2010 Plan.

As of March 31, 2014, 3,492,590 shares of our common stock were available for issuance pursuant to the 2010 Plan.

Stock option awards are granted with an exercise price equal to the closing market price of the Companys common stock at the date of grant. The fair value of each option granted under the 2010 Plan is estimated on the date of grant using the Black-Scholes option-pricing model. The fair values are being amortized on a straight-line basis over the vesting periods.

The following table sets forth the stock option activity under the 2010 Plan for the three months ended March 31, 2014:

Number of Shares Subject to Options

Weighted Average Exercise Price

Options outstanding, December 31, 2013

1,133,915

$

19.89

Granted





Exercised

(13,536

)

15.79

Forfeited

(31,423

)

31.69

Expired

(3,947

)

15.80

Options outstanding, March 31, 2014

1,085,009

$

19.61

The following table sets forth the number of shares subject to options that are unvested as of March 31, 2014, and the fair value of these options at the grant date:

Number of Shares Subject to Options

Weighted Average Fair Value at Grant Date

Unvested balance, December 31, 2013

635,739

$

7.10

Granted





Forfeited

(31,423

)

9.76

Vested

(148,404

)

6.50

Unvested balance, March 31, 2014

455,912

$

7.11

As of March 31, 2014, total unearned compensation on options was approximately $2.6 million, and the weighted-average vesting period was 1.7 years.

Restricted Awards and Units

During the three months ended March 31, 2014, the Company granted 199,191 shares of restricted stock which had a value of $6.3 million on the grant date. Also during the three months ended March 31, 2014, the Company issued 348 restricted stock units or RSUs. The principal difference between these instruments is that RSUs are not shares of the Companys common stock and do not have any of the rights or privileges thereof, including voting rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of common stock. The restricted awards will be amortized on a straight-line basis to expense over the vesting period. The following table sets forth the number of unvested restricted awards and RSUs and the weighted average fair value of these awards at the date of grant:

Restricted Awards

Weighted Average Fair Value at Grant Date

Unvested balance, December 31, 2013

495,151

$

25.08

Granted

199,539

31.65

Forfeited

(61,852

)

27.34

Vested

(137,477

)

22.81

Unvested balance, March 31, 2014

495,361

$

28.08

As of March 31, 2014, total unearned compensation on restricted awards was approximately $12.3 million, and the weighted-average vesting period was 2.7 years.

On March 4, 2014, the Company granted long-term incentives to the Companys executive officers in the form of performance-based restricted stock awards (PSAs) under the 2010 Plan. The number of PSAs earned is based on the Companys achievement of relative total shareholder return (TSR) measured versus the MSCI US REIT Index over a three-year performance period, and the number of shares earned under the PSAs may range from 0% to 150%. The PSAs are earned as follows: (i) 20% of the PSAs are eligible to be earned upon TSR achievement in year one of the performance period, (ii) 20% of the PSAs are eligible to be earned upon TSR achievement in year two of the performance period, (iii) 20% of the PSAs are earned upon TSR achievement in year three of the performance period, and (iv) 40% of the PSAs are eligible to be earned upon a cumulative TSR achievement over the three-year performance period. Earned PSAs will be released at the end of the three-year performance period provided that the executive continues to be employed by the Company at the end of the performance period. Holders of the PSAs are entitled to dividends on the PSAs, which will be accrued and paid in cash at the end of the performance period. The PSAs initially are granted and issued at 150% of the target amount and thereafter are forfeited to the extent vesting conditions are not met.

During the three months ended March 31, 2014, the Company granted 60,889 PSAs equal to 100% of the target amount, with a value of $1.6 million on the grant date. The PSAs, in addition to a service condition, are subject to the Companys performance versus the MSCI US REIT Index performance which is a market condition and impacts the number of shares that ultimately vests. Upon evaluating the results of the market condition, the final number of shares is determined and such shares vest based on satisfaction of the service conditions. The PSAs have graded vesting terms and will be amortized on a straight-line basis over the vesting period.

10. Earnings Per Share

Basic income per share is calculated by dividing the net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted income per share adjusts basic income per share for the effects of potentially dilutive common shares, if the effect is not antidilutive. Potentially dilutive common shares consist of shares issuable under our equity-based compensation plan. The following is a summary of basic and diluted income per share (in thousands, except share and per share amounts):

Three Months Ended March 31,

2014

2013

Net income attributable to common shares

$

2,733

$

1,849

Weighted average common shares outstanding - basic

20,992,758

20,673,896

Effect of potentially dilutive common shares:

Stock options

364,158

363,346

Unvested awards

164,922

277,537

Weighted average common shares outstanding - diluted

21,521,838

21,314,779

Net income per share attributable to common shares

Basic

$

0.13

$

0.09

Diluted

$

0.13

$

0.09

In the calculations above, we have excluded weighted-average potentially dilutive securities of 262,473 and 133,166 for the three months ended March 31, 2014, and 2013, respectively, as their effect would have been antidilutive.

11. Estimated Fair Value of Financial Instruments

Authoritative guidance issued by FASB establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring assets and liabilities at fair values. This hierarchy establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy under the authoritative guidance are as follows:

Level 1  Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the assessment date.

Level 2  Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

The Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy; however, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. As of March 31, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

The total balance of our revolving credit facility and senior unsecured term loan was $260 million as of March 31, 2014, with a fair value that approximated book value, based on Level 3 inputs from the fair value hierarchy. Under the discounted cash flow method, the fair values are based on the Companys assumptions of interest rates and terms available incorporating the Companys credit risk.

12. Commitments and Contingencies

Our properties require periodic investments of capital for general capital improvements and for tenant related capital expenditures. The Company enters into various construction and equipment contracts with third parties for the development of our properties. In addition, the Company enters into contracts for company-wide improvements that are ancillary to revenue generation. At March 31, 2014, we had open commitments related to these contracts of approximately $48.6 million.

Additionally, the Company has commitments related to telecommunications capacity used to connect data centers located within the same market or geographical area and power usage. At March 31, 2014, we had open commitments related to these contracts of approximately $9.7 million.

As part of our 2012 acquisition of Comfluent, a Denver, Colorado based data center operator, the former Comfluent owner was employed and will be paid leasing commissions based upon successfully renewing and increasing revenues from the customer base that existed at the date of acquisition. We currently estimate that this amount will be $8.2 million, assuming these customers are renewed beyond the January 2015 payment date. Leasing commissions are accrued within the consolidated financial statements as lease terms for the former Comfluent customers are extended beyond January 2015. We currently have $4.2 million accrued as a leasing commission related to those customers that have been renewed as of March 31, 2014.

From time to time, we are party to a variety of legal proceedings arising in the ordinary course of business. We believe that, with respect to any such matters to which we currently are a party, the ultimate disposition of any such matter will not result in a material adverse effect on our business, financial condition, cash flows or results of operations.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Quarterly Report), together with other statements and information publicly disseminated by our company, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA), namely Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the PSLRA and include this statement for purposes of complying with these safe harbor provisions.

In particular, statements pertaining to our capital resources, portfolio performance, business strategies and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as believes, expects may, will, should, seeks, intends, plans, pro forma or anticipates or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) the geographic concentration of our data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; (ii) fluctuations in interest rates and increased operating costs; (iii) difficulties in identifying properties to acquire and completing acquisitions; (iv) the significant competition in our industry and an inability to lease vacant space, renew existing leases or release space as leases expire; (v) lack of sufficient customer demand to realize expected returns on our investments to expand our property portfolio; (vi) decreased revenue from costs and disruptions associated with any failure of our physical infrastructure or services; (vii) our ability to lease available space to existing or new customers; (viii) our failure to obtain necessary outside financing; (ix) our failure to qualify or maintain our status as a REIT; (x) financial market fluctuations; (xi) changes in real estate and zoning laws and increases in real property tax rates; (xii) delays or disruptions in third-party network connectivity; (xiii) service failures or price increases by third party power suppliers; (xiv) inability to renew net leases on the data center properties we lease; and (xv) other factors affecting the real estate industry generally.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this Quarterly Report. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the United States Securities and Exchange Commission, or SEC, pursuant to the Exchange Act. We discussed a number of material risks in Item 1A. Risk Factor of our Annual Report on Form 10-K for the year ended December 31, 2013. Those risks continue to be relevant to our performance and financial condition. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Overview

Unless the context requires otherwise, references in this Quarterly Report to we, our, us and our company refer to CoreSite Realty Corporation, a Maryland corporation, together with our consolidated subsidiaries, including CoreSite, L.P., a Delaware limited partnership of which we are the sole general partner and which we refer to in this Quarterly Report as our Operating Partnership.

We deliver network-dense, cloud-enabled, enterprise-class data center products and services across eight key North American markets. We connect, protect and deliver a reliable performance environment and continued operation of mission-critical data and IT infrastructure for more than 800 of the worlds leading enterprise and Internet, private networking, mobility, and cloud service providers. Across 16 high-performance data centers, we support the operation and growth of our customers businesses by providing products and services aimed toward helping them establish connections with networks, cloud-service providers, and other technology-services providers, operate performance-sensitive applications, and secure their mission-critical information and communications technology equipment.

We are engaged in the business of ownership, acquisition, construction and management of strategically located data centers in some of the largest and fastest growing data center markets in the United States, including the New York, Northern Virginia and San Francisco Bay areas, Los Angeles, Chicago, Boston, Miami and Denver.

Our Portfolio

As of March 31, 2014, our property portfolio included 16 operating data center facilities and multiple development projects which collectively comprise over 2.7 million net rentable square feet of space (NRSF), of which approximately 1.5 million NRSF is existing data center space, including pre-stabilized space. The development projects include land and space available for development and construction of new facilities in the San Francisco Bay, Northern Virginia and New York areas. Our operating portfolio includes approximately 298,000 NRSF of space readily

available for lease, of which 225,000 NRSF is available for lease as data center space. Including the space currently under construction at March 31, 2014, vacant space and land targeted for future development, we own land and buildings sufficient to develop approximately 0.9 million NRSF of data center space. We expect that this development potential plus any potential expansion into new markets will enable us to accommodate existing and future customer demand and position us to significantly increase our cash flows. We intend to pursue development projects and expansion into new markets when we believe those opportunities support the additional supply in those markets. The following table provides an overview of our properties as of March 31, 2014:

Stabilized Operating NRSF

Data Center(1)

Office and Light- Industrial(2)

Total

Pre-Stabilized NRSF(5)

Development NRSF(6)

Total

Market/Facilities

Annualized Rent ($000)(3)

Total

Percent Occupied(4)

Total

Percent Occupied(4)

Total

Percent Occupied(4)

Total

Total

Portfolio NRSF

Los Angeles

One Wilshire Campus

LA1*

$

24,298

149,405

75.2

%

4,373

78.4

%

153,778

75.3

%





153,778

LA2

14,694

159,617

84.0

7,029

70.8

166,646

83.5

65,296

199,978

431,920

Los Angeles Total

38,992

309,022

79.7

11,402

73.7

320,424

79.5

65,296

199,978

585,698

San Francisco Bay

SV1

11,566

84,045

87.5

206,255

80.2

290,300

82.3





290,300

SV2

6,346

76,676

69.8





76,676

69.8





76,676

Santa Clara Campus

22,766

220,676

92.7

71,308

91.5

291,984

92.4

31,497

173,240

496,721

San Francisco Bay Total

40,678

381,397

86.9

277,563

83.1

658,960

85.3

31,497

173,240

863,697

Northern Virginia

VA1

22,802

201,719

77.0

61,050

79.4

262,769

77.6





262,769

VA2

















198,000

198,000

DC1*

2,742

22,137

84.0





22,137

84.0





22,137

Northern Virginia Total

25,544

223,856

77.7

61,050

79.4

284,906

78.1



198,000

482,906

Boston

BO1

13,523

166,026

94.4

19,495

60.5

185,521

90.8



87,650

273,171

Chicago

CH1

11,504

158,167

86.6

4,946

62.3

163,113

85.9

20,240



183,353

New York

NY1*

4,927

48,404

69.9

209

100.0

48,613

70.0





48,613

NY2















52,692

202,367

255,059

New York Total

4,927

48,404

69.9

209

100.0

48,613

70.0

52,692

202,367

303,672

Miami

MI1

1,731

30,176

45.7

1,934

38.6

32,110

45.2



13,154

45,264

Denver

DE1*

692

4,144

100.0





4,144

100.0





4,144

DE2*

137

5,140

75.4





5,140

75.4





5,140

Denver Total

829

9,284

86.4





9,284

86.4





9,284

Total Facilities

$

137,728

1,326,332

83.0

%

376,599

80.6

%

1,702,931

82.5

%

169,725

874,389

2,747,045

* Indicates properties in which we hold a leasehold interest.

(1)Represents the NRSF at each operating facility that is currently occupied or readily available for lease as data center space. Both occupied and available data center NRSF includes a factor to account for a customers proportionate share of the required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas, which may be updated on a periodic basis to reflect the most current build-out of our properties.

(2)Represents the NRSF at each operating facility that is currently occupied or readily available for lease as space other than data center space, which is typically space offered for office or light industrial uses.

(3)Represents the monthly contractual rent on stabilized operating NRSF under existing commenced customer leases as of March 31, 2014, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement. On a gross basis, our annualized rent was approximately $144.1 million as of March 31, 2014, which reflects the addition of $6.4 million in operating expense reimbursements to contractual net rent under modified gross and triple-net leases.

(4)Includes customer leases that have commenced and are occupied as of March 31, 2014. The percent occupied is determined based on leased square feet as a proportion of total operating NRSF. The percent occupied for data center space, office and light industrial space, and space in total would have been 84.7%, 83.0%, and 84.3%, respectively, if all leases signed in current and prior periods had commenced.

(5)Represents pre-stabilized NRSF of projects/facilities which recently have been developed and are in the initial lease-up phase. Pre-stabilized projects/facilities become stabilized operating properties at the earlier of achievement of 85% occupancy or 24 months after development completion. Annualized rent and NRSF percent occupied for pre-stabilized NRSF is $3.0 million and 15.6%, respectively, as of March 31, 2014.

(6)Represents vacant space and entitled land in our portfolio that requires significant capital investment in order to develop into data center facilities as of March 31, 2014. Includes NRSF under construction for which substantial activities are ongoing to prepare the property for its intended use following development. In addition to the amounts above, we may develop an additional 138,000 NRSF at the Santa Clara Campus and 100,000 NRSF at NY2 upon our receipt of the necessary entitlements.

Our property portfolio has experienced consistent growth since our IPO. The following table shows the March 31, 2014, operating statistics for space that was leased and available to be leased as of December 31, 2012, at each of our properties, and excludes space for which development was completed and became available to be leased after December 31, 2012. For comparison purposes, the operating activity totals as of December 31, 2013, and 2012, for this space are provided at the bottom of this table.

Same Store Property Portfolio (in NRSF)

Data Center

Office and Light- Industrial

Total

Market/Facilities

Annualized Rent ($000)(1)

Total

Percent Occupied(2)

Total

Percent Occupied(2)

Total

Percent Occupied(2)

Los Angeles

One Wilshire Campus

LA1*

$

24,298

149,405

75.2

%

4,373

78.4

%

153,778

75.3

%

LA2

14,694

159,617

84.0

5,147

96.7

164,764

84.4

Los Angeles Total

38,992

309,022

79.7

9,520

88.3

318,542

80.0

San Francisco Bay

SV1

11,566

84,045

87.5

206,255

80.2

290,300

82.3

SV2

6,346

76,676

69.8





76,676

69.8

Santa Clara Campus

19,830

118,955

86.4

71,308

91.5

190,263

88.3

San Francisco Bay Total

37,742

279,676

82.2

277,563

83.1

557,239

82.6

Northern Virginia

VA1

22,802

201,719

77.0

61,050

79.4

262,769

77.6

DC1*

2,742

22,137

84.0





22,137

84.0

Northern Virginia Total

25,544

223,856

77.7

61,050

79.4

284,906

78.1

Boston

BO1

11,145

148,795

93.7

13,063

41.0

161,858

89.4

Chicago

CH1

11,504

158,167

86.6

4,946

62.3

163,113

85.9

New York

NY1*

4,915

48,404

69.9





48,404

69.9

Miami

MI1

1,731

30,176

45.7

1,934

38.6

32,110

45.2

Denver

DE1*

$

692

4,144

100.0





4,144

100.0

DE2*

137

5,140

75.4





5,140

75.4

Denver Total

829

9,284

86.4





9,284

86.4

Total Facilities at March 31, 2014(3)

$

132,402

1,207,380

81.4

%

368,076

80.6

%

1,575,456

81.2

%

Total Facilities at December 31, 2013

$

129,959

79.9

%

79.3

%

79.8

%

Total Facilities at December 31, 2012

$

120,165

77.0

%

79.1

%

77.5

%

* Indicates properties in which we hold a leasehold interest.

(1) Represents the monthly contractual rent under existing commenced customer leases as of each respective period, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(2) Includes customer leases that have commenced and are occupied as of each respective period. The percent occupied is determined based on leased square feet as a proportion of total operating NRSF.

(3) The percent occupied for data center space, office and light industrial space, and space in total would have been 83.2%, 83.1%, 83.1% respectively, if all leases signed in current and prior periods had commenced.

Development space is unoccupied space or entitled land that requires significant capital investment in order to develop data center facilities that are ready for use. The following table summarizes the NRSF under construction and NRSF held for development throughout our portfolio as of March 31, 2014: